
2.	ACQUISITIONS

Acquisitions in 2016

McKee Terminal Services Business

Effective April 1, 2016, we acquired from Valero a subsidiary that owns and operates a crude oil, intermediates, and refined petroleum products terminal supporting Valero’s McKee Refinery for total consideration of $240.0 million, which consisted of (i) a cash distribution of $204.0 million and (ii) the issuance of 728,775 common units and 14,873 general partner units to Valero having an aggregate value of $36.0 million. We funded the cash distribution with $65.0 million of our cash on hand and $139.0 million of borrowings under our revolving credit facility. See Note 5 for further discussion of the borrowings under our revolving credit facility. This acquisition was accounted for as an acquisition of a business. See Note 1 for a further discussion about the accounting and basis of presentation of this acquisition.

Meraux and Three Rivers Terminal Services Business

Effective September 1, 2016, we acquired from Valero two subsidiaries that own and operate crude oil, intermediates, and refined petroleum products terminals supporting Valero’s Meraux and Three Rivers Refineries for total consideration of $325.0 million, which consisted of (i) a cash distribution of $276.0 million and (ii) the issuance of 1,149,905 common units and 23,467 general partner units to Valero having an aggregate value of $49.0 million. We funded the cash distribution with $66.0 million of our cash on hand and $210.0 million of borrowings under our revolving credit facility. See Note 5 for further discussion of the borrowings under our revolving credit facility. This acquisition was accounted for as an acquisition of a business. See Note 1 for a further discussion about the accounting and basis of presentation of this acquisition.

Acquisition in 2017

Red River Crude System

Effective January 18, 2017, we acquired a 40 percent undivided interest in (i) the newly constructed Hewitt segment of Plains All American Pipeline L.P.’s (Plains) Red River pipeline (the Hewitt segment), (ii) two 150,000 shell barrel capacity tanks located at Hewitt Station (the Hewitt Storage Tanks), and (iii) a pipeline connection from Hewitt Station to Wasson Station (the Wasson Interconnect) for total cash consideration of $71.8 million. We funded this acquisition with available cash on hand.

The Hewitt segment consists of a 138-mile, 16-inch crude oil pipeline with 150,000 barrels per day of throughput capacity that originates at Plains Marketing L.P.’s Cushing, Oklahoma terminal and ends at Hewitt Station in Hewitt, Oklahoma. The pipeline supports Valero’s Ardmore Refinery and began supplying crude oil to Valero in January 2017. We retain a right to participate in any future expansions of the pipeline.

This acquisition was accounted for as an acquisition of assets. See Note 3 for a further discussion of the commercial agreement we entered into with Valero concurrent with this acquisition.

We also entered into a Joint Ownership Agreement (JOA) and an Operating and Administrative Services Agreement with Plains concurrent with this acquisition. The JOA provides us with access to the remaining 60 percent of the capacity of the Hewitt Storage Tanks and the Wasson Interconnect and continues until terminated by mutual agreement. This access arrangement is accounted for as an operating lease. The administrative agreement facilitates the day-to-day operations and management functions of the pipeline for an initial five-year term and automatically renews for successive five-year terms.

Presentation of Reported Financial Information

The following table presents our previously reported statement of income for the three months ended March 31, 2016 (as presented in our Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission (SEC) on May 6, 2016) retrospectively adjusted for the acquisitions of the McKee Terminal Services Business and the Meraux and Three Rivers Terminal Services Business (in thousands).



	Three Months Ended March 31, 2016
	Valero Energy Partners LP (Previously Reported)			McKee Terminal Services Business			Meraux and Three Rivers Terminal Services Business			Valero Energy Partners LP (Currently Reported)
Operating revenues – related party	$	78,767		$	—		$	—		$	78,767
Costs and expenses:
Operating expenses	19,096			1,781			3,409			24,286
General and administrative expenses	4,161			67			137			4,365
Depreciation expense	9,388			1,233			891			11,512
Total costs and expenses	32,645			3,081			4,437			40,163
Operating income (loss)	46,122			(3,081		)	(4,437		)	38,604
Other income, net	77			—			—			77
Interest and debt expense, net of capitalized interest	(2,659		)	—			—			(2,659		)
Income (loss) before income taxes	43,540			(3,081		)	(4,437		)	36,022
Income tax expense	242			—			—			242
Net income (loss)	43,298			(3,081		)	(4,437		)	35,780
Less: Net loss attributable to Predecessor	—			(3,081		)	(4,437		)	(7,518		)
Net income attributable to partners	$	43,298		$	—		$	—		$	43,298

The following table presents our previously reported statement of cash flows for the three months ended March 31, 2016 (as presented in our Quarterly Report on Form 10-Q filed with the SEC on May 6, 2016) retrospectively adjusted for the acquisitions of the McKee Terminal Services Business and the Meraux and Three Rivers Terminal Services Business (in thousands).



	Three Months Ended March 31, 2016
	Valero Energy Partners LP (Previously Reported)			McKee Terminal Services Business			Meraux and Three Rivers Terminal Services Business			Valero Energy Partners LP (Currently Reported)
Cash flows from operating activities:
Net income (loss)	$	43,298		$	(3,081	)	$	(4,437	)	$	35,780
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense	9,388			1,233			891			11,512
Changes in current assets and current liabilities	(1,986		)	—			—			(1,986		)
Changes in deferred charges and credits and other operating activities, net	206			—			—			206
Net cash provided by (used in) operating activities	50,906			(1,848		)	(3,546		)	45,512
Cash flows from investing activities:
Capital expenditures	(6,267		)	—			(933		)	(7,200		)
Net cash used in investing activities	(6,267		)	—			(933		)	(7,200		)
Cash flows from financing activities:
Repayment of capital lease obligations	(326		)	—			—			(326		)
Payment of offering costs	(107		)	—			—			(107		)
Cash distributions to unitholders and distribution equivalent right payments	(22,711		)	—			—			(22,711		)
Net transfers from Valero Energy Corporation	—			1,848			4,479			6,327
Net cash provided by (used in) financing activities	(23,144		)	1,848			4,479			(16,817		)
Net increase in cash and cash equivalents	21,495			—			—			21,495
Cash and cash equivalents at beginning of period	80,783			—			—			80,783
Cash and cash equivalents at end of period	$	102,278		$	—		$	—		$	102,278